<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Annual Report Pursuant to Sections 13 or 15 (d)
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission File Number 2-94249
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
(name of registrant)
Arizona 75-1982134
(State of Organization) (I.R.S. employer ID No.)
4455 East Camelback Road
Suite A-200
Phoenix, Arizona 85018
(address of principal executive office)
(602) 840-0060
(registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Documents Incorporated by Reference
None
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Hall Institutional Mortgage Fund:
We have audited the accompanying balance sheets of Hall Institutional Mortgage
Fund (an Arizona limited partnership) as of December 31, 1995 and 1994, and the
related statements of operations, partners' equity and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements and the schedule referred to below are the responsibility of the
management of Hall Institutional Mortgage Fund (the "Partnership"). Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hall Institutional Mortgage
Fund as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As further discussed in Note 7
to the financial statements, in February 1996, the Partnership learned that
certain transactions it had entered into during 1995 had caused the Partnership
to be in violation of the 1940 Investment Company Act (the "1940 Act"). The
Partnership is applying for an exemption under the 1940 Act and is planning to
solicit the approval of the partners concerning alternatives to liquidate the
Partnership. One of the alternatives would require an immediate liquidation of
all Partnership assets and subsequent dissolution. The accompanying financial
statements have not been prepared on the liquidation basis of accounting, as it
is not determinable if an immediate liquidation of the Partnership will be
required. This uncertainty raises substantial doubt about the Partnership's
ability to continue as a going concern. The accompanying financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
<PAGE> 3
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule XII is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
Dallas, Texas, /s/ ARTHUR ANDERSON L.L.P.
April 8, 1996
<PAGE> 4
HALL INSTITUTIONAL MORTGAGE FUND
DECEMBER 31, 1995, 1994 AND 1993
<PAGE> 5
HALL INSTITUTIONAL MORTGAGE FUND
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994 (NOTE 1)
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ------------- ------------
<S> <C> <C>
Cash and cash equivalents (Note 2) $ 1,332,041 $ 204,315
Mortgage notes receivable - affiliates, net of an allowance
for doubtful receivables of $4,576,000 and $5,571,770
in 1995 and 1994, respectively (Note 3), and net of loan
origination fees of $2,338 and $14,734 for 1995 and 1994
respectively (Note 1 and 4) 1,092,345 600,911
Accrued interest receivable - affiliates, net of deferred interest
and an allowance for doubtful interest receivable
of $3,928,180 and $4,826,539 in 1995 and
1994, respectively (Note 3) 1,639,890 1,488,973
Deferred charges, net 1,950 4,350
------------- ------------
$ 4,066,226 $ 2,298,549
============= ============
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Accounts payable $ 9 $ 23
Partners' equity:
Limited partners - 2,568 units outstanding
at December 31, 1995 and 1994 4,028,303 2,278,289
General Partner 37,914 20,237
------------- ------------
4,066,217 2,298,526
------------- ------------
$ 4,066,226 $ 2,298,549
============= ============
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
F-2
<PAGE> 6
HALL INSTITUTIONAL MORTGAGE FUND
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (NOTE 1)
<TABLE>
<CAPTION>
Revenues: 1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Interest and loan origination
fees from affiliates (Notes 3 and 4) $ 177,535 $ 26,524 $ 50,494
Gain on debt settlement (Note 3) - - 75,000
------------ ------------ -----------
177,535 26,524 125,494
------------ ------------ -----------
Expenses:
Operating 60,830 32,255 47,928
Bad debt reversal (Note 3) (1,653,386) (1,923,618) -
Amortization 2,400 2,400 2,400
------------ ------------ -----------
(1,590,156) (1,888,963) 50,328
------------ ------------ -----------
Net income $ 1,767,691 $ 1,915,487 $ 75,166
============ ============ ===========
Net income allocable to
limited partners $ 1,750,014 $ 1,896,332 $ 74,414
Net income allocable to
General Partner 17,677 19,155 752
------------ ------------ -----------
Net income $ 1,767,691 $ 1,915,487 $ 75,166
============ ============ ===========
Net income per limited
partnership unit $ 681 $ 738 $ 29
============ ============ ===========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
F-3
<PAGE> 7
HALL INSTITUTIONAL MORTGAGE FUND
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (NOTES 1 AND 5)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
--------------- ---------------- ---------------
<S> <C> <C> <C>
Balance, December 31, 1992 $ 1,046 $ 307,543 $ 308,589
Net income 752 74,414 75,166
---------- ----------- -----------
Balance, December 31, 1993 1,798 381,957 383,755
Distributions (716) - (716)
Net income 19,155 1,896,332 1,915,487
---------- ----------- -----------
Balance, December 31, 1994 20,237 2,278,289 2,298,526
Net income 17,677 1,750,014 1,767,691
---------- ----------- -----------
Balance, December 31, 1995 $ 37,914 $ 4,028,303 $ 4,066,217
========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
F-4
<PAGE> 8
HALL INSTITUTIONAL MORTGAGE FUND
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (NOTE 1)
<TABLE>
<CAPTION>
1995 1994 1993
---------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipt of interest on Specific Loans - affiliates
and short-term investments $ 1,188,570 $ 8,596 $ 8,311
Proceeds from debt settlement - - 75,000
Payment of operating costs (60,844) (33,735) (46,425)
--------------- ------------- -------------
Net cash provided by (used in) operating activities,
net of distributions 1,127,726 (25,139) 36,886
--------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans to Affiliated Borrowers - - (181,000)
Distribution paid - (2,083) -
--------------- ------------- -------------
Net cash used in financing activities - (2,083) (181,000)
--------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 1,127,726 (27,222) (144,114)
Cash and cash equivalents, beginning of year 204,315 231,537 375,651
--------------- ------------- -------------
Cash and cash equivalents, end of year $ 1,332,041 $ 204,315 $ 231,537
=============== ============= =============
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Net income $ 1,767,691 $ 1,915,487 $ 75,166
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Bad debt reversal (1,653,386) (1,923,618) -
Amortization expense 2,400 2,400 2,400
Amortization of deferred revenue (12,396) (17,928) (42,183)
Decrease in accrued interest receivable 1,023,431 - -
Increase (decrease) in accounts payable (14) (1,480) 1,503
--------------- ------------- -------------
Net cash provided by (used in) operating
activities, net of distributions $ 1,127,726 $ (25,139) $ 36,886
=============== ============= =============
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
F-5
<PAGE> 9
HALL INSTITUTIONAL MORTGAGE FUND
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Hall Institutional Mortgage Fund, an Arizona limited partnership (the
"Partnership"), was formed on October 12, 1984. The general partner of the
Partnership is Hall Pension Fund Associates (the "General Partner") and the
general partner of Hall Pension Fund Associates is Hall 1985 Management
Associates Limited Partnership (the "Managing General Partner"). The
Partnership has invested in subordinated mortgages with affiliated
partnerships (the "Affiliated Borrowers") which were primarily secured by
income-producing real estate. The investments were made during 1985, 1986
and 1987 (except for the Arrowtree Loan hereinafter defined). The limited
partners in the Partnership are primarily qualified pension, profit sharing
and other retirement trusts and plans, commingled trust funds managed by
banks for such trusts, government pension and retirement trusts, individual
retirement accounts, Keogh plans, certain endowment funds and other
institutional investors intended to be exempt from federal income taxation.
The Partnership also accepted nontax-exempt investors who desired current
taxable income from mortgage investments in real estate.
BASIS OF PRESENTATION -
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION -
Interest income derived from mortgage notes receivable is deferred to the
extent the underlying mortgage notes receivable are determined, by the
Managing General Partner, to be either partially or completely uncollectible
on the basis described in note 3. If in future periods such mortgage notes
receivable and related interest are deemed to be collectible, the deferred
interest income will be recognized. Deferred interest is classified in the
accompanying balance sheets as a reduction in accrued interest receivable.
Cash receipts on impaired loans are first applied to recognize previously
deferred interest and then as a reduction of accrued interest and then
finally as a reduction of principal.
For the purpose of the statement of cash flows the Partnership considers
all highly liquid investments with a maturity of three months or less to
be cash equivalents.
F-6
<PAGE> 10
INCOME TAXES -
The Partnership is not subject to federal, state, or local income taxes
and, accordingly, none have been provided in the accompanying financial
statements. Such taxes are the responsibility of the partners and are,
therefore, included in their individual tax returns.
LOAN ORIGINATION FEE -
A 3 percent loan origination fee was earned by the Partnership on each
participating mortgage loan made. This revenue was initially deferred and
is being recognized ratably over the life of the specific related loans.
AMORTIZATION OF ORGANIZATION COSTS -
Organization costs are amortized on a straight-line basis over twelve years.
ALLOCATION OF PROFIT AND LOSS -
Partnership net profits are allocated 99 percent to the limited partners
and 1 percent to the General Partner. Net losses are allocated to the
limited partners and General Partner in proportion to the positive balances
in their capital accounts. However, all net losses will be allocated to the
General Partner if the allocation to the limited partners would result in a
negative capital account balance for the limited partners.
DISTRIBUTIONS OF DISTRIBUTABLE CASH FROM OPERATIONS
AND SURPLUS FUNDS -
Distributable cash from operations and surplus funds, as defined, is
allocated 99 percent to the limited partners and 1 percent to the General
Partner. However, the General Partner, exercising reasonable discretion,
may retain in the Partnership all or any part of the funds available for
distributions to meet the working capital needs of the Partnership (see
Note 2).
NET INCOME PER LIMITED PARTNERSHIP UNIT -
Net income per limited partnership unit ("Unit") is computed by dividing
net income allocated to the limited partners by the weighted average number
of Units outstanding. Per Unit information has been computed based on 2,568
Units outstanding in 1995, 1994 and 1993.
F-7
<PAGE> 11
(2) CASH AND CASH EQUIVALENTS:
Cash and cash equivalents at December 31, 1995 and 1994, consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Cash $ 55,804 $ 44,898
Certificates of deposit/Money
Market account 1,276,237 159,417
----------- ---------
$ 1,332,041 $ 204,315
=========== =========
</TABLE>
Under the terms of the partnership agreement, the General Partner is
required to maintain in the Partnership reasonable cash reserves for
working capital and contingencies in an amount of not less than 1% of
invested capital, as defined ($74,400 and $78,400 in 1995 and 1994
respectively). The Partnership maintained the required working capital
reserve at December 31, 1995 and 1994.
(3) MORTGAGE NOTES RECEIVABLE:
The Partnership's loans to Affiliated Borrowers (see notes 1 and 4 for
relationship) are nonrecourse obligations of the Affiliated Borrowers and
certain of the loans are secured by a subordinate lien on the mortgaged
real property which is pledged as security. The Partnership has released its
second lien position on certain of the loans to Affiliated Borrowers (see
below and Notes 6 and 7). All loans, except a certain amount advanced to
Hall Seven Trails Associates, as more fully discussed hereafter (the
"Arrowtree Loan"), made by the Partnership to the Affiliated Borrowers were
subject at the time of origination to the rights and restrictions set out in
a specified loan agreement ("Model Loan Agreement") and two specified forms
of notes ("Participating Notes"). Such loans are hereafter referred to as
"Specific Loans". As described hereinafter, all of the Specific Loans set
out in the Model Loan Agreement and the Participating Notes have been
modified subsequent to their origination. As a result of a detailed analysis
the Partnership performs on the estimated values of the underlying assets
relating to and impacting the collectibility of the Specific Loans, as
hereafter described, certain amounts of the Specific Loans have been
reserved through bad debt provisions. The following table describes the
terms and status of outstanding Specific Loans at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
Outstanding Principal
Loan Amount Property
Borrower 1994 1995 Location Accrue Status
---- ---- -------- ------ ------
<S> <C> <C> <C> <C>
Arrowtree $ 850,000 $ 913,683 Okemos, MI (A) Modified
Brambletree 1,751,000 1,751,000 Garland, TX 7.00% Modified
Twintree 720,000 720,000 Albuquerque, NM 8.00% Modified
</TABLE>
F-8
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C> <C>
Midtree 410,000 410,000 Albuquerque, NM 8.00% Modified
Fawntree 550,000 - Albuquerque, NM N/A Retired
Lanetree 620,000 620,000 Albuquerque, NM 8.00% Modified
Candlewick 460,000 460,000 Albuquerque, NM 8.00% Modified
Coachtree 615,000 615,000 Albuquerque, NM 8.00% Modified
----------- -----------
$ 5,976,000 $ 5,489,683
=========== ===========
</TABLE>
The following table shows the changes in the Partnership's allowance for
loan losses for the years ending December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Balance at beginning of period $5,571,770 $5,976,000
Allowance recorded on loans 33,268 211,415
Recovery of prior loans - -
Reduction in allowance for loan losses (1,029,038) (615,645)
---------- ----------
Balance at end of period $4,576,000 $5,571,770
========== ==========
</TABLE>
The following table shows the changes in the Partnership's allowance for
interest receivable losses for the years ending December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Balance at beginning of period $4,826,539 $6,139,271
Allowance recorded on interest receivables 684,119 868,181
Recovery of prior losses - -
Reduction in allowance for interest receivable (1,582,478) (2,180,913)
---------- ----------
Balance at end of period $3,928,180 $4,826,539
========== ==========
</TABLE>
(A) Arrowtree's Specific Loan accrual rate is equal to the principal
payments Arrowtree makes on its first lien mortgage.
The Partnership periodically reviews the amount of reserves which are
necessary on both its mortgages and interest receivables. Previously, the
process of reviewing the amount of reserves was based on the current
market value of each Affiliated Borrower's asset holdings and where the
Partnership stands in relation to the Affiliated Borrower's other creditors.
Effective January 1, 1995, the Partnership adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" (SFAS #114). SFAS #114 required the Partnership to evaluate its
mortgage notes for impairment based on a measurement of the present value of
expected future cash flows, the loans observable market price, or the fair
value of the loans collateral if the loan is collateral dependent. In
accordance with SFAS #114, the Partnership obtained a third-party appraisal
of its mortgages and interest receivables which estimated values of the
Partnership's mortgages and interest receivables ranging from $1,275,000 -
$1,600,000, exclusive of amounts received in connection with the Arrowtree
refinancing (see Note 8). The accompanying financial statements
F-9
<PAGE> 13
reflect the results of the receivables appraised values at December 31,
1995, and is based on the upper end of the valuation range.
The resulting appraised valuations were based on the discounted cash flow
analysis' of the underlying properties (discounted at 12%) assuming a
five-year holding period with a sale occurring at the end of the fifth year.
The total discounted cash flows were further discounted (at 50%-60%) to
compensate for the risk associated with owning a minority non-controlling
equity interest which the Partnership is deemed to possess as a lender to
each of the Affiliated Borrowers.
For the years ended December 31, 1995 and 1994, respectively, the
Partnership reversed bad debt reserves totaling $1,653,386 and $1,923,618.
The amounts reversed during 1995 were primarily based on interest payments
received during the year on previously reserved amounts and the expected
principal payments to be received in connection with the Arrowtree
refinancing discussed in Note 8. The amounts reversed during 1994 were based
upon management's process of reviewing the necessary reserves as discussed
above and resulted from the increased values of the properties that
collateralized the mortgage notes at that time. There was no change in the
reserve during 1993.
On November 1, 1995, Midtree Associates, Ltd. ("Midtree") refinanced the
Midtree apartments' mortgages. The first lien mortgage in place prior to
the refinancing had an original maturity date of August 1, 1995, but was
extended to allow Midtree time to secure the refinancing proceeds. As part
of the overall refinancing, the property was transferred to Phoenix Square
Associates, Ltd. ("New Midtree"), with Midtree retaining a 99% interest in
New Midtree. The property was refinanced with a new $4.2 million first lien
which accrues interest at 8.1% through maturity on November 1, 2002. Monthly
principal and interest payments are based on a 30-year amortization
schedule. As a condition of the refinancing, the Partnership was required to
release its second lien position and retain an unsecured loan from Midtree
for the remaining balance on Midtree's Specific Loan. The remaining balance
on the Midtree Specific Loan has the same economic and payment terms as
prior to the refinancing. The Partnership believes it was in its best
interest to agree to release its second lien position pursuant to the
refinancing. By doing so, Midtree was able to avoid foreclosure on its
underlying property from the original first lien holder and reduce the
interest rate on the first lien from 12%.
Hall Seven Trails Associates ("Arrowtree") completed an agreement with
Prudential Insurance Company ("Prudential") in 1994 regarding restructuring
its first lien encumbrance on which Arrowtree had been in default since
March 1, 1989. The agreement with Prudential required Arrowtree to raise
$345,000 in cash and funding commitments (the "New Capital") to fund a
capital improvement escrow account, pay the lender's administrative costs,
and to bring debt service current under its new terms. Arrowtree issued a
capital call to equity investors and raised approximately $171,000 of the
New Capital. The Partnership loaned Arrowtree $181,000 ("Arrowtree
Reorganization Advance") with such funds being used by Arrowtree as part of
the New Capital. The Arrowtree Reorganization Advance accrues interest at
10% compounded monthly beginning January 1, 1994. Interest and principal on
the Arrowtree Reorganization Advance was deferred and reserved,
respectively, in 1994. Pursuant to the Partnership's analysis of the
collectibility of receivables from the Affiliated Borrowers, a portion of
this reserve was reversed in 1995. In 1994, the Partnership modified its
Specific Loan from Arrowtree to agree with various modifications called
F-10
<PAGE> 14
for as part of the agreement with Prudential and in the Arrowtree plan of
reorganization (the "1994 Arrowtree Modification"). The 1994 Arrrowtree
Modification provided that repayment of the principal portion of Arrowtree's
Specific Loan and the repayment of the Arrowtree Reorganization Advance and
its related accrued interest is subordinate to Prudential receiving their
entire first lien and related accrued interest. The interest portion of
Arrowtree's Specific Loan, in addition to being subordinate to Prudential,
is also subordinate to the repayment of all the New Capital contributed by
equity investors plus a 10% annual preference on such funds. The Partnership
believes it was in its best interest to have consented to the 1994
modification of the first lien, to have consented to the 1994 Arrowtree
Modification, and to make the Arrowtree Reorganization Advance. As a result
of these events, the Partnership was able to retain its second lien on the
property since the first lien was not assumable by the Partnership and the
Partnership did not have the capability of paying off the first lien. As of
December 31, 1995, the Arrowtree Reorganization Advance was secured by the
Partnership's second lien on the property.
A plan of reorganization (the "Plan") for Hall Brambletree Associates
("Brambletree") was confirmed on May 19, 1993. According to the Plan, the
principal and interest of $2,037,324 due to the Partnership on its mortgage
note receivable will bear interest at 7% per annum beginning January 1,
1993. Property cash flow and sale and refinance proceeds will be allocated
first to the investors who provided additional equity of $250,000 to
Brambletree as part of the Plan (the "Participating Investors"), plus a 12%
annual preference, then 50% to the Participating Investors and 50% to Hall
Financial Group, Inc. ("HFGI") and the Partnership to be shared pro rata
until HFGI and the Partnership are paid in full, and then 100% to the
Participating Investors.
The Partnership, Hall Buckingham Associates ("Buckingham"), and Buckingham's
senior mortgage holder signed an agreement on July 15, 1993 wherein the
Partnership released Buckingham of its mortgage note receivable in return
for consideration of $75,000. The Partnership recognized a $75,000 gain on
debt settlement in 1993 since the Buckingham mortgage note had been fully
reserved in prior periods.
Fawntree Associates, Ltd. ("Fawntree"), an Affiliated Borrower, was sold for
$6,400,000 on June 15, 1995. After the satisfaction of all claims having
priority over the Partnership, Fawntree distributed $582,682 to the
Partnership per the terms on the Fawntree Specific Loan. The Partnership had
previously reserved the entire amount of the Fawntree Specific Loan. As a
result of the sale of the property in 1995 and related payment to the
Partnership, the Partnership reversed the reserve related to the repayment
and wrote off the remaining accrued but unpaid interest of $397,408 and
principal balance of $550,000 against the related reserves.
In February 1995, three of the Affiliated Borrowers entered into a
transaction with affiliates of NHP, Inc., Paine Webber and HFGI whereby the
properties were transferred to separate limited partnerships (the "New LPs")
by the respective Affiliated Borrower (the "NHP Transaction"). As a result
of the NHP Transaction, Lanetree Associates Limited Partnership, Twintree
Associates Limited Partnership and Coachtree Associates Limited Partnership
("NHP Transaction Partnerships") each hold a limited partnership interest in
its respective New LP in which affiliates of NHP, Inc. and Paine Webber are
general partners. As part of the NHP Transaction, the senior mortgage for
each property involved in the NHP Transaction was paid in full. In addition,
as part of the NHP Transaction, each NHP Transaction Partnership received
cash at closing, and is entitled to a defined priority equity
F-11
<PAGE> 15
amount in the New LPs (the "Preferred Equity") and an annual return on the
Preferred Equity of 6% per annum provided that all of the New LPs have been
paid in full at the end of each calender quarter ("Operational Participation
Proceeds"). In the event all of the New LPs have not been paid in full for
Operational Participation Proceeds at the end of each calender quarter, the
annual return on the Preferred Equity in calculating Operational
Participation Proceeds increases to 9% per annum (hereafter referred to as a
"Non- Major Default"). In addition to Operational Participation Proceeds,
each NHP Transaction Partnership is entitled to a priority return of the
Preferred Equity and any accrued and unpaid Operational Participation
Proceeds upon refinancing or sale of the properties over other equity
classes and a 20% participation in net proceeds available from sale or
refinancing after payment of the Preferred Equity and any accrued and unpaid
Operational Participation Proceeds ("Sale or Refinancing Participation
Proceeds"). Lanetree Associates Limited Partnership distributed $569,419 to
the Partnership in March 1995 in partial payment of its loan obligation to
the Partnership from proceeds it received at closing of the NHP Transaction.
There were not sufficient proceeds at closing (after the payment of priority
repayments) to distribute funds to the Partnership from Coachtree Associates
Limited Partnership or Twintree Associates Limited Partnership. However,
the NHP Transaction Partnerships remain obligated to the Partnership
pursuant to each partnership's Bankruptcy Plan. The terms of the Preferred
Equity held by the NHP Transaction Partnerships provided that defined
amounts be paid not later than December 10, 2000. NHP, Inc. has the option
to pay the Preferred Equity amounts due the NHP Transaction Partnerships at
an earlier date at a discounted amount. If NHP, Inc. exercises its option
within twenty-one months of the original transaction date, or November 7,
1996, it would result in the following estimated payments, excluding Sale or
Refinancing Participation Proceeds and assuming a Non-Major Default has not
occurred, to the Partnership from each of the NHP Transaction Partnerships:
<TABLE>
<S> <C>
Coachtree $177,960
Lanetree $1,167,626
Twintree $381,815
</TABLE>
F-12
<PAGE> 16
The amounts the Partnership would receive on December 10, 2000, excluding
Sale or Refinancing Participation Proceeds and assuming a Non-Major Default
has not occurred, is estimated to be:
<TABLE>
<S> <C>
Coachtree $334,743
Lanetree $1,167,626
Twintree $561,409
</TABLE>
As of April 8, 1996, a Non-Major Default had occurred in the NHP
Transaction.
(4) TRANSACTIONS WITH AFFILIATES:
Loan origination fees of $12,396, $17,928 and $42,183 were recognized in
1995, 1994 and 1993, respectively. In 1995, pursuant to the Partnership's
analysis of the collectibility of receivables from the Affiliated Borrowers,
interest income of $128,670 was recognized on the Specific Loan from
Lanetree Associates Limited Partnership. No interest income was recognized
on Specific Loans in 1994 or 1993. The interest income is net of deferred
interest of $673,397, $849,228, and $971,098 on non-performing mortgage
notes receivable in 1995, 1994 and 1993, respectively.
The General Partner, the Managing General Partner and the Affiliated
Borrowers are all affiliates of HFGI whose majority shareholder is Mr. Craig
Hall. As is more fully discussed in the Partnership's Annual Report on Form
10-K, Part II, Item 7, certain of the limited partnerships affiliated with
HFGI have experienced cash flow deficits due primarily to overbuilding and
poor economic conditions in the market areas in which they operate. Certain
of these cash flow deficits have been and are being funded by HFGI. HFGI may
be unwilling or unable to provide additional cash deficit funding to the
Affiliated Borrowers and there can be no assurance such funding will be
available from other sources.
(5) DISTRIBUTIONS TO PARTNERS:
During the year ended December 31, 1994, distributions of $2,083 (of which
$1,367 had been previously accrued) were paid to the General Partner. No
distributions were made in 1995 or 1993. Such distributions were made in
accordance with the partnership agreement which requires quarterly
distributions of Partnership distributable cash flow, as defined.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires the Partnership to disclose the
estimated fair values of its financial instruments.
The carrying amount of the Partnership's cash and cash equivalents
approximates its fair value due to the short maturity of these instruments.
The Partnership's mortgage note receivables and accrued interest receivables
have been recorded at their estimated fair value based upon an independent
third-party appraisal (see Note 3).
F-13
<PAGE> 17
(7) INVESTMENT ACT OF 1940:
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. In February 1996, the
Partnership's attorneys advised the Partnership that the release of the
second lien positions on certain of the loan receivables could cause the
Partnership to be treated as an investment company under the 1940 Investment
Company Act (the "1940 Act") by the Securities and Exchange Commission. The
Partnership cannot become an investment company under the 1940 Act because
it is in conflict with its partnership agreement and the purpose of the
original offering. The Partnership, however, is in the process of applying
for a "no action" letter from the Securities and Exchange Commission based
on the position that the 1940 Act provides for an exemption for companies
not to be considered investment companies if they adopt a plan of
liquidation. In the original offering, it was anticipated that when the
loans were repaid, the funds would be distributed back to the unit holders
rather than being allowed to be reinvested. Therefore, based upon the
Partnership's original partnership documents, the intent was to have a
liquidating fund after all the initial loans were made. In order to adopt a
liquidating plan, a proxy will be sent to each unit holder for their vote.
Under the liquidation plan proxy, the unit holders will be asked to choose
one of two alternatives. A majority vote (over 50%) for either alternative
will determine the treatment of all unit holders.
The first alternative would be an immediate liquidation of the Partnership
based on a sale of all the loans receivable to HFGI for $1.6 million. This
amount was determined by taking the highest range of value as determined by
an independent third party appraisal. The proceeds from the sale of the
loans receivable plus the cash on hand will then be distributed to the unit
holders based upon their percentage interest. The Partnership would then be
dissolved.
The second alternative is to make a distribution to the unit holders from
current funds available and to collect whatever additional loan proceeds are
realized over a five year period of time. Any Partnership loan receivables
which are still outstanding at the end of the five years will be appraised
by an independent third party appraiser and the Partnership will then offer
for sale the remaining loan receivables from the Partnership at such
appraised value. The proceeds from the sale of the loans at the end of five
years, as well as any remaining cash on hand will then be distributed pro
rata to the unit holders of the Partnership and the Partnership will be
terminated.
Management expects a proxy statement will be sent out within 90 days from
March 31, 1996 to all unit holders, as well as a request for a no action
letter from the Securities and Exchange Commission.
The accompanying financial statements have not been prepared on the
liquidation basis of accounting, as it is not determinable if an immediate
liquidation of the Partnership will be required. This uncertainty raises
substantial doubt about the Partnership's ability to continue as a going
concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
F-14
<PAGE> 18
(8) SUBSEQUENT EVENTS:
In January 1996, Northtree Associates Limited Partnership ("Candlewick")
refinanced the Candlewick apartments' mortgages. The property was refinanced
with a new $5.0 million first lien mortgage which accrues interest at 7.58%
with principal and interest payments due monthly based on a 22-year
amortization schedule through maturity on February 1, 2003. As a condition
of the refinancing agreement, the Partnership was required to release its
second lien position and retain an unsecured loan from Candlewick for the
remaining balance on Candlewick's Specific Loan. The remaining balance on
the Candlewick Specific Loan has the same economic terms as prior to the
refinancing. The Partnership believes it was in its best interest to release
its second lien position to allow the refinancing to be consummated, thereby
decreasing Candlewick's first lien mortgage interest rate and extending the
maturity date.
In January 1996, the Arrowtree apartments' mortgages were refinanced. As
part of the overall refinancing, the property was transferred to Arrowtree
Properties, Ltd. ("New Arrowtree"), with Arrowtree retaining a 99% interest
in New Arrowtree. The property was refinanced with a new $2.75 million first
lien mortgage which accrues interest at 7.57% with principal and interest
payments due monthly. The refinancing allowed Arrowtree to repay the
Partnership in full the principal and accrued interest on the Arrowtree
Reorganization Advance and to make a partial payment of approximately
$913,000 on Arrowtree's Specific Loan. As a condition of the refinancing
agreement, however, the Partnership was required to release its second lien
position and retain an unsecured loan from Arrowtree for the remaining
balance on Arrowtree's Specific Loan. The remaining balance on the Arrowtree
Specific Loan has the same economic and payment terms as prior to the
refinancing.
F-15
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
By: Hall Pension Fund Associates,
its General Partner
By: Hall 1985 Management Associates Limited Partnership
its General Partner
By: Hall Apartment Associates, Inc.,
its Managing General Partner
By: /s/ DON BRAUN Date: January 17, 1996
---------------------------- --------------------
Don Braun
President/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person in the capacities
indicated of the Managing General Partner, on behalf of the registrant on the
date indicated.
By: Hall Apartment Associates, Inc., the Managing General Partner
of Hall 1985 Management Associates Limited Partnership, the
General Partner of Hall Pension Fund Associates, the General
Partner of Hall Institutional Mortgage Fund Limited Partnership
By: /s/ DON BRAUN Date: January 17, 1996
---------------------------- --------------------
Don Braun
President/Treasurer
